Deregulation and Free Trade a Win-Win for Mexican Narcotraffickers

The past decade has not been kind to Mexico. Since officially transitioning from one-party rule in 2000, the country has witnessed the perverse effects of neoliberal economic policies, the striking rise in power of locally based drug traffickers, state-sponsored violence that has left tens of thousands dead and countless others victimized by human rights abuses, and a political system riddled with corruption. For many observers unfamiliar with Mexico, especially those next door in the United States, these developments have come as something of a shock.

As Peter Watt and Roberto Zepeda argue in their excellent new book, Drug War Mexico, however, the recent security crisis in Mexico hardly emerged from nowhere. The authors convincingly demonstrate that the country’s current troubles result from the confluence of long-standing factors, not least the economic interventions of outside powers, which have been exacerbated and reinforced by the government’s heavily militarized fight against Mexican narcotraffickers. The consequence, according to the Watt and Zepeda, is a country characterized by violence and ever deepening inequality.

I recently spoke with one of the book’s authors, Peter Watt, Lecturer in Hispanic Studies at the University of Sheffield, about the origins and development of the Mexican drug trade, the intersections between neoliberal economic policies and the American-sponsored “war on drugs,” the prospects of continued democratization in Mexico, and what the new presidency of Enrique Pena Nieto might possibly hold for the country moving forward. This is the first in a two-part series.

One of the great features of the book is its insistence on shattering the “state vs. traffickers” dichotomy that characterizes a lot of writing on the Mexican drug wars. Instead, you argue that traffickers benefit from the state and that state actors benefit from the drug trade. Can you talk a little about what this looks like, how it has developed, and how it can be understood in the current context of Mexican politics?

The mutually beneficial relationship between smugglers of contraband and the political and economic elites goes right back to the beginning of the twentieth century. During the Mexican Revolution, central government was preoccupied that the internal turmoil and instability of the conflict would allow for an invasion by the United States. This they viewed as a real possibility given that Mexico had lost more than 40 percent of its land to the United States in the mid-nineteenth century. At the same time, the government was equally concerned about the growing insurrection in the northern states and the influence and popularity of anarchist figures like the brothers Ricardo and Enrique Flores-Magón. In this context, President Carranza granted quasi-autonomous powers to states like Baja California in order to offset the danger of rural insurrection. From the outset, then, a certain leniency was afforded to organised criminal activities, while dissent and activism were harshly punished. The northern states were still cut off from the metropole because of distance and because of the remote terrain and mountains, despite the fact that capitalist development in Mexico had invested heavily in building 10,000 miles of new railroad prior to the outbreak of the revolution.

The then governor of Baja California, Esteban Cantú, also a military general, takes advantage of the fact that central government is essentially leaving the north to get on with things, so long as they prioritise quelling rebellions and staving off incursions by the US army. Cantú forbids the use of Mexican currency, printing his own instead, and raises his own taxes. Using his power with near complete impunity, he makes a personal fortune from prostitution, extortion, gambling and smuggling contraband into the United States. Governors like Cantú actually favored the prohibition policies, not for the same reasons that Nancy Reagan preached “Just Say No,” but because prohibition virtually guaranteed that the price of opium and heroin would rise. For those in power who could abuse their positions with few or no legal consequences, it was a way to get rich quickly.

Both Mexico and the United States ban the sale of narcotics in the 1910s and 1920s, pushing what ultimately is an issue of public health into the black market and the informal economy. When alcohol sales are outlawed in the US between 1919 and 1933, Mexican smugglers step in to satisfy the appetite for illicit booze. And again, prohibition assures enviable profit margins for those involved in smuggling. The United States Border Patrol is created in 1924, but the border is so massive—some 2,000 miles in length—and most of the terrain remote, it’s impossible to police efficiently. Combined with impunity for official involvement, corruption within the political system and plenty of poor people as a labor force, these factors allow for the smuggling of contraband operate relatively unhindered.

But the systematic control of the drug trade by the political elites really takes shape during the rule of the Institutional Revolutionary Party (PRI), in power from 1929 to 2000 (and which returned to power in 2012). Between 1938 and 1939 the Mexican federal narcotics reserve, a branch of the department of health, proposes establishing a government monopoly on the drugs trade. The US government responded by instituting an embargo on medical drugs to Mexico and thus the plan was abandoned. Yet while the formal and legalised monopoly of the drugs trade proved impossible, informal and tacit arrangements took their place throughout the eight decades of PRI rule.

Following the war, in 1947, with encouragement and backing from the US government, Mexico creates its own secret police force, modelled on both the FBI and the CIA. The newly formed DFS is an organization charged with political spying, maintaining what the PRI refers to as political ‘stability’, and punishing and quelling oppositionary social movements. The PRI can’t stay in power for 71 years without monitoring and either co-opting or punishing dissenters, and the DFS is one of the best weapons in its armory. The DFS is allowed to operate with complete impunity and is lavished with enormous sums of money. A system develops in which the DFS spies on and takes out subversives, Marxists, Communists, student activists and guerrillas, but also acts as a go-between between organised crime and the political elite.

In order for traffickers to operate they end up needing the permission, aid and wherewithal of the DFS. Under the PRI, the system comes to be known as la plaza, or “town square” in English. Having permission to work a plaza means having privileges—granted by the police, military, mayors, state governors, the DFS—to smuggle drugs in a certain area without interference from the authorities. In fact, in order to guarantee immunity, a number of traffickers, like Pablo Acosta, were given DFS badges and guns in order to fend off unwanted attention from the law. In return for such freedoms, traffickers would make monthly payments to the authorities. When they failed to make payments they ended up arrested or assassinated in the latest sting against narcotraffickers, something which always made for good stories in the media.

Because these arrangements were mutually beneficial to trafficking organisations and the political system, the violence was less widespread than it is today and the Pax Mafiosa which characterised the PRI years was due in large part to the fact the many criminal organisations were essentially tacit employees of the political system. Everyone understood who was in charge and only the most foolhardy defied the DFS and the politicians. That’s not to say that it wasn’t violent—it was, but the levels of violent conflict we’re witnessing today are unprecedented.

There are a couple of causal factors and critical junctures the book focuses on which you suggest are central to understanding the evolution of Mexican drug trafficking. One is neoliberalism. Can you discuss the significance of neoliberal policies on the Mexican economy and the development of the drug trade?

There’s an argument that beginning in the 1980s, PRI hegemony begins to break down. The party experiences a crisis of legitimacy as the population begins to view the PRI dinosaur as an eternal, yet corrupt, political institution which now serves only its own interests. From the 1930s to 1982, Mexico had one of the most protectionist economies in the region and among the largest public spending programs. Insufficient as they were, there were at least some social safety nets afforded to society’s most vulnerable. And then there was the land reform which had to an extent democratised ownership in the wake of the revolution.

Beginning in 1982 the PRI abandons its national revolutionary project in for the neoliberal model of privatization which demands the retreat of the state from public responsibilities in favor of market forces. And the profile of those at the top of the political system changes significantly. Previously, the elite of the PRI comprised those who had served for years in the party machine and had experience of the political system. By the 1980s, however, it’s clear that this has changed—now the party is run by moneyed technocrats educated at Harvard, Princeton, and Oxford who have essentially bought themselves into political power. Some members of the old guard, like Cuauhtémoc Cárdenas, the son of President Lázaro Cárdenas, one of the architects of the post-revolutionary state, are expelled for being too left-wing.

In addition, the Partido Acción Nacional (PAN) makes serious headway in the elections and holds governorships in a number of states, meaning that organised crime doesn’t just have to negotiate with the PRI anymore.

There are several other important factors too, all of which contribute to a perfect storm. One is that when Ronald Reagan launches a campaign against Colombian narcotraffickers smuggling narcotics through the Caribbean and into Miami, the Colombians move their business westward to Mexico. That way they avoid the heat of Reagan’s South Florida Task Force in the Caribbean with the added advantage that the Mexicans will perform the most dangerous stage of the operation: transporting drugs into the United States. And now it is the Mexicans, not the Colombians, who risk lengthy jail terms in the United States. At first the Colombians take the lion’s share of the profits, but increasingly, the Mexicans, who have their own distribution networks in the US, are able to manage things on their own terms. As a result, Mexican cartels become richer and more powerful.

A further contributory factor to the growth of cartels aided by the active complicity of the political system is Reagan’s other war, the one in Central America. In order to rid Central America of the “communist cancer” once and for all, the CIA used the Contras to attempt the overthrow of the Sandinista government of Nicaragua. As stories in the international press emerged that the Contras were committing systematic human rights abuses, terrorising the civilian population and purposefully destroying the country’s infrastructure, the US Congress reduced the funding available to train and arm the Contra army. For Colonel Oliver North and the CIA, however, that simply wasn’t good enough. So they sold arms to Iran in order to raise funds that would then be diverted to the Contras to overthrow the Sandinistas, who, as Reagan claimed, were intent on invading the United States. That a country of three million impoverished peasants with no naval fleet and a tiny military had neither the intention nor the capacity to invade the most powerful economic and military power in world history was lost on the US media.

Also lost on the American media was that in order to circumvent the lack of funds available to overthrow the democratically-elected Sandinistas, now the CIA was using the Guadalajara cartel and the DFS to ship money and arms to the Contras. In return, these traffickers, with DFS assistance, were essentially given free reign of cities in the US Southwest and California, having been granted a green light by the CIA. One also wonders to what extent this intensified the explosion of crack cocaine in US inner-cities in the 80s. Such a policy inevitably contributed to the growth of organised crime in Mexico. The one person in the US media who reported this, Gary Webb, was completely marginalised for doing so and the San José Mercury News, where he had published the investigation, eventually let him go after intense political pressure.

And then there’s NAFTA.

The neoliberal programme accelerated significantly when President Salinas signs the North American Free Trade Agreement in 1993, coming into law in 1994. What did the planners of the neoliberal program expect to happen with a massive transfer of wealth from the poor to the rich? The Clinton government knew full well that an immediate effect of NAFTA in Mexico would be massive internal displacement and an increased migration to the United States. In the same year, the US government stepped up its militarisation of the border with its Operation Gatekeeper, something which pushed undocumented migrants to ever remoter and more dangerous areas, vulnerable to extreme climatic conditions, thirst, hunger and the activities of criminal gangs poised ready to profit on the latest expansion of human misery.

During the negotiations for NAFTA, members of the DEA and the US Customs Service raised concerns which should have been obvious to anyone who gave the potential repercussions of the treaty any thought. They were worried—correctly, it turns out—that deregulation and free trade would be a win-win situation for drug trafficking organizations. But both Presidents George HW Bush and Bill Clinton explicitly prohibited them from raising the subject publicly. I doubt they actively wanted drug cartels to flourish. It’s just that it was an external or secondary concern to pushing through free-market policies.

NAFTA exacerbated problems already existent in Mexico. What we do in the book is question the validity of the neoliberal project and discuss some of its most destructive attributes. You have to be a real ideologue to still believe that the free-market somehow equals democracy. But unfortunately the falsehood that the market takes care of all ills is still a widespread piety—which is one of the reasons we dedicated much of the book to taking it apart. And it’s not just in Mexico that this is happening—it’s all over the place.

Can you discuss some of those attributes?

One of the key components of NAFTA is an attack on Article 27 of the Mexican Constitution. Land reform had been very much the crowning achievement of the 1917 document, which was pretty radical for its time. Communal land rights, for the first time since the Revolution, come under attack with NAFTA in a move to sell off more of Mexico’s resources to foreign investors and private interests. That’s one of the reasons that the Zapatista insurrection becomes publicly visible on January 1, 1994. They see NAFTA—rightly in my view—as a selling off of public and natural resources to Mexican elites and multi-national corporations.

As part of the structural adjustment programmes accelerated by NAFTA, the government removes subsidies to small-time farmers and on foodstuffs for the poor. And at the same time, the prices of basic foodstuffs like milk and tortillas increase.

What are some of the results of these changes? Mexico, which in the 1960s had been largely food self-sufficient, by the NAFTA period is orienting its produce to the export market. At the same time, the market is flooded with cheap foreign products, like corn. As the stringent measures imposed on Mexican farmers have not been imposed on their US counterparts—for US agriculture continues to receive taxpayer subsidies while these are cut back in Mexico—the mountain of US corn finds a market in Mexico, effectively denying millions of agricultural producers a living. So in the first six years of NAFTA, two million farmers leave the land. And they migrate to the ever-expanding metropolises, the sweatshops, or maquiladoras, in the north or to the United States. Thus, in the late 1990s and the early 2000s the number of people illegally crossing into the United States reaches an unprecedented level, some 500,000 annually, becoming the largest migration of people across a border on the planet.

While neoliberalism rewards Mexico’s rich with ever greater entitlements as the number of billionaires increases dramatically, the gap between rich and poor reaches new levels as the few social safety nets available to society’s most vulnerable get cut back. So as well as migrating, as you might expect, growing numbers of people are obliged to seek work in the informal economy. By the mid-2000s, this could be as much as half of the economically active population.

Now, with the fluctuation of prices for basic foodstuffs destined for the export market, it should be no surprise that some producers turned to crops that always wielded a stable and more profitable return. Growing poppies and marijuana had the advantage of fetching a higher price than corn, vanilla and beans. Neoliberalism in Mexico had the effect of pushing people towards the informal sector; there are now probably more people working in the illicit drugs trade than in the petroleum industry. If policy makers are serious about reducing the traffic of drugs passing through or originating in Mexico, the first and most crucial step is to alleviate poverty and reduce the perverse distribution of wealth which sees Carlos Slim, the world’s richest man, acquire $27 million every day, while over half the population has to make do with $2 a day.

During his presidency, Carlos Salinas privatizes more public assets than any of his predecessors. Many of these companies are sold off to friends in the economic and political elite, moneyed supporters and contributors to the PRI, a fact that kind of undermines all that religious zeal about the free market and competition. Many of these people have interests in the narcotics trade for the simple reason that they’re out to make money, and there are few easier ways of making money fast than trafficking drugs. So they buy up public assets and end up using these companies as places to launder the illegal proceeds from narcotics. Another key component of all this is that Mexican banks—many of which had been nationalised in 1982 as a result of the economic crisis—are privatized again in the 1990s. Again, it’s not that they’re sold off to those individuals and sectors which are particularly good at banking—instead they go to millionaire friends and supporters of Salinas. Privatization thus becomes a way for the rich to become some of the wealthiest people in the world. Just look at Forbes magazine’s list of the richest people in the world. Many of them are Mexicans and one is Joaquín “El Chapo” Guzmán, the leader of the Sinaloa cartel.

Anyway, the deregulated banking sector is virtually unaccountable and is now able to launder billions of dollars of hot money more easily on behalf of organized crime. Carrying a million dollars around in a briefcase is not like in the movies—it can’t be done. You can get about $250,000 in denominations of $50 dollar bills in one case. But the cartels are earning billions every year. Amado Carrillo Fuentes is by the mid-1990s bringing in plane loads of drugs from Colombia. They called him El señor de los cielos, or Lord of the Skies, because he had a fleet of Boeing 727s which he used to collect cocaine in Colombia, flying it up to Mexico every week, apparently without any of the authorities or politicians noticing. Well, what does one do with billions of dollars of illicit money? It’s risky to move it around in trucks. So you set up accounts at Bank of America or Citibank under aliases. Or, you do what Raúl Salinas, the brother of the president, was accused of by Swiss investigators and move it to offshore tax havens. All this helps make the cartels very powerful indeed—it’s difficult to see how they could have grown without somewhere to launder and keep all that cash. And it allows the banks in Mexico, the United States and the United Kingdom to have access to billions of dollars in liquid assets every week.

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